Can practitioners give up their email disclaimers?

In June, the IRS finalized changes to Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10), affecting the provision of written tax advice and certain other related provisions. The new regulations remove the old “covered opinion” rules, which were contained in Section 10.35, and provide one standard for written tax advice, contained in Section 10.37.

Former Section 10.35 provided detailed rules for tax opinions that qualified as “covered opinions.” Covered opinions generally included written tax advice on listed transactions and transactions that had a principal purpose of tax avoidance or evasion, as well as certain opinions that had as a significant purpose tax avoidance or evasion. To play it safe (and as permitted by Circular 230), most practitioners attempted to exempt their advice from the reach of Section 10.35 by making prominent disclosures or disclaimers on all written documents, including emails, stating that the opinion could not be relied on for penalty protection.

With the removal of the covered opinion rules comes the elimination of these covered opinion disclaimer rules. In the preamble to the regulations, the IRS said that it expects that practitioners will no longer include a prominent “Circular 230 disclaimer” at the bottom of every email and other documents.

The IRS was concerned that the ubiquitous use of Circular 230 disclaimers discouraged compliance with Circular 230’s ethical requirements because some practitioners who used the disclaimer felt it allowed them to disregard Circular 230’s written tax advice standards. The IRS also felt that Circular 230 disclaimers caused confusion among clients, and their widespread use led clients to ignore them.

Written tax advice, including advice contained in emails, will now be judged on a “reasonable practitioner” standard. That is, practitioners must base all written advice on reasonable factual and legal assumptions, exercise reasonable reliance, and consider all relevant facts that the practitioner knows or should know. A practitioner must also use reasonable efforts to identify and ascertain the facts relevant to written advice.

However, the IRS also explicitly states that the new regulations do not prohibit the use of “an appropriate statement describing any reasonable and accurate limitations of the advice rendered to the client.” With the removal of the old rules, it now appears to be the practitioner’s responsibility to determine whether language should be included in emails and other writings to describe these “reasonable and accurate limitations” and what that language should be.

In determining whether to include a disclaimer, and what that disclaimer should be, practitioners have to balance their need to protect themselves from a client’s overreliance on the practitioner’s advice, which may be informally given in an email, with the harm that could result to the client if the client cannot rely on the practitioner’s advice. All practitioners should study the new rules.

For a detailed discussion of the issues in this area, see “New Rules on Written Tax Advice and Other Revisions to Circular 230 and Their Effect on CPAs,” by Mary L. Blatch, James F. Bresnahan II, Gerard H. Schreiber Jr., Norma J. Schrock, and Thomas J. Purcell III, in the December 2014 issue of The Tax Adviser.

—Alistair M. Nevius, editor-in-chief, The Tax Adviser

Also look for articles on the following topics in the December 2014 issue of The Tax Adviser:

• An update on employee benefits and pensions.
• A discussion of recent New York tax law changes.
• A look at useful tax websites.

The Tax Adviser is the AICPA’s monthly journal of tax planning, trends, and techniques. AICPA members can subscribe to The Tax Adviser for a discounted price of $85 per year. Tax Section members can subscribe for a discounted price of $30 per year. Call 800-513-3037 or email taxsection@aicpa.org for a subscription to the magazine or to become a member of the Tax Section.